Going Pro: How to Choose a Tax Preparer

More than 50% of taxpayers hire a professional to prepare their taxes. But you’re legally responsible for what is on your tax return even if you paid someone else to prepare it for you. Mistakes and their consequences are the responsibility of the individual, married couple, or business whose name appears at the top of the return.

That’s why it’s imperative that if you hire a tax pro, you know how to choose the right one.

The Basics

The vast majority of professional tax preparers are honest, ethical, and hard-working, but that doesn’t mean they’re all the same. There are four types of paid tax preparers, each with specific levels of expertise.

Paid preparer: Due to a 2013 court ruling, there are no minimum requirements that must be met in order to become a paid tax preparer. Anyone can apply for a preparer tax identification number (PTIN), which allows them to prepare, sign, and e-file tax returns in exchange for a fee.

Enrolled agents: While no formal education, such as a college degree, is required to become an enrolled agent (EA), they must pass a three-part enrollment test administered by the IRS. The test requires that applicants demonstrate proficiency in federal tax planning and individual and business tax preparation and representation. They are also required to complete 72 hours of continuing professional education every three years.

Certified Public Accountants (CPA): These professionals are licensed by state boards of accountancy and must have passed the Uniform CPA Examination, a four-part test that takes 14 hours to complete. Before an individual is permitted to take the test, he or she must have earned at least a bachelor’s degree in accounting and have a total of 150 semester hours of study (required in 40 states). CPAs are also required to meet their home state’s requirement for continuing professional education. CPAs must also comply with strict state and national ethical standards.

Attorneys: All attorneys are licensed by state courts and must pass state bar exams in order to become licensed. While all attorneys can prepare taxes, most do not and not all attorneys who prepare taxes are tax attorneys. Tax attorneys are lawyers who specialize in tax law and represent clients in tax matters.

The Best Preparer for You

The best preparer for you is the one whose abilities exceed your needs.

That means, for example, if you have only W-2 income, don’t itemize deductions, and are simply not comfortable completing your own return (even despite the free tax software out there), a paid preparer may be adequate. At the other end of the spectrum, if you have a complicated trust or inheritance tax return, you may be best served by a tax attorney.

The knowledge and experience of enrolled agents can vary dramatically, ranging from public accountants who hold a bachelor’s degree in accounting with decades of tax experience to those with little practical experience who have only recently passed the EA exam.

While not all CPAs are the same, the stringent requirements for becoming one ensure a higher degree of expertise than enrolled agents. A CPA is often your best choice if you have a more complicated return that includes income from a variety of sources, especially self-employment or investment income.

Most CPAs are capable of preparing all types of personal and business tax returns. Both CPAs and EAs are authorized by the Treasury Department to represent taxpayers before the IRS for audits, collections, and appeals.

What to Look For

No matter what type of paid tax preparer you are considering, there are some important things to ask before you hand over your paperwork:

  • Be sure the preparer is authorized to sign and e-file your tax return by having a valid PTIN.
  • Ask about fees before you hire to protect yourself from sticker shock later.
  • Verify that the preparer has experience preparing returns that are similar to yours.
  • Make sure the preparer is willing and able to answer questions about your return even after it has been filed.
  • Never accept or sign a blank return or a return the preparer refuses to sign.
  • Check credentials and licenses of EAs and CPAs before hiring them to make sure they are valid.
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